The Engulfing Bar Trade Setup

The engulfing bar trade setups is another keystone trade setup just like the pin bar, it offers a very reliable signal that is easy to spot on any chart. There is nothing better than an effective trade setup that is also extremely easy to spot. It only takes two candles to form an engulfing bar and they usually stand out. This article will explain everything you need to know about the engulfing bar to be able to trade it successfully.
A quick note about an engulfing bat is that it is often referred to a BUEB or BEEB on this website and many other websites. A BUEB stands for Bullish Engulfing Bar and BEEB stands for Bearish Engulfing Bar. Didn’t want any confusion later on when you are reading this website or any other Forex website.

What is an Engulfing Bar?

An engulfing bar is a two bar setup that usually acts as a reversal signal it but can also be a continuation signal. As the name says, it is formed when a candle fully engulfs the previous candle. It can engulf more than one candle but one is the minimum. The more bars it engulfs the more powerful and reliable the engulfing bar is.

The engulfing bar forms because market has decided on which way it wants to go by having a bar consume the previous bar. If a bullish candle engulfs the previous bar then the market is bullish and you want to enter long. The exact opposite for a bearish engulfing bar, you want to enter short after the bearish candle.

Engulfing Bar Characteristics

Identifying an engulfing bar can sometimes be difficult because many people define an engulfing bar differently. For example some traders define an engulfing bar as one that engulfs the whole candle, the high and the low, and then other traders define it as one that engulfs only the body of the previous candle. This can cause a lot of confusion for beginner traders.
From experience the engulfing bar that engulfs the whole bar is usually a better setup, so that means it engulfs the previous candles high, low and body. By following this rule you will have a better chance of success when trading engulfing bars. There are some other characteristics that an engulfing bar must have to truly be called an engulfing bar.

Engulfing Bar Characteristics

• Bar must fully consume the previous bar(High, low and body)
• The bigger the engulfing bar the better
• Must have space to the left
• Must print at either a support or resistance zone

With the chart below you can see an engulfing bar in action, it fully consumes the previous two bars and is right on the support and resistance zone. There is space to the left and it is a huge a bearish candle. This is a great trade setup and as you can see the prices plummeted after the bearish engulfing bar.

The bigger the bar the better, the reason for that is because it shows that the market is ready to move in that direction and is moving strongly. Also the more candles that the bar engulfs the more powerful the trade will be.

The engulfing bar trade setup happens quite often in the market but by using the information here you will be able to sort through the mediocre ones and only trade the best ones. This will result in a higher successf rate for your trades and will make you a more profitable trader.

How To Trade The Engulfing Bar

Just like any other trade setup, you need to make sure that it fits the characteristics of a true engulfing bar. You don’t want to be trading an engulfing bar that only fits half of the needed characteristics because the probability of it being a successful trade will significantly decrease.
Once you have confirmed that it is truly an engulfing bar then you can begin thinking about trading it and checking other parts that make up a successful trade.
First thing you need to do once an engulfing bar has been confirmed is figure out what the market conditions currently are. Is it trending up or down? Is it ranging? These are important questions that every trader should ask themselves before entering a trade. If you want to learn how to identify these things read the article How-To Identify Trends In The Market.

With this chart you can see that the market is currently in a strong downtrend. The market then pulled back a little bit then printed a nice big bearish engulfing bar that consumed the previous three bars. That is a very good with the trend trade.

The next thing you need to check is whether or not the engulfing bar has printed at a support or resistance zone. If it doesn’t print on a support and resistance zone then you probably shouldn’t take the trade. Having an engulfing bar on a support and resistance zone is important because that is the area on the chart where prices have respected before and we can expect the same thing again.

This is another good example of an engulfing bar and this time it is right on a support zone. It pulled back to a support zone then an engulfing bar consumed the previous two bars. Then as you can see the price dropped immediately after.

Those two trade setups for an engulfing bar are great but what if there was a way to make it an even more of a reliable trade setup? Matter in fact there is, it is called trading with confluence, this means that the trend, support and resistance zone and the engulfing bar all align to make a very reliable trade. When you have all three of these things in your favor in a trade it will greatly increase its effectiveness.

On the chart below there is a great example of an engulfing bar with confluence. It is with the trend, on a support zone and a nice engulfing bar. All the ingredients for a successful trade are present.

Entry and Stop Loss Placement For Engulfing Bar Trade Setups

Placing the entry and stop loss for an engulfing bar trade setup is a very simple process. It is very similar to the pin bar, you place the entry above the high if the engulfing bar is bullish and below if it is bearish. The stop loss goes below the low if it bullish and above the high if it is bearish. Below are a couple of examples to better explain.
Entry:
On the chart below you see that it is a bullish engulfing bar so you would place the entry above the high just like it is below on the chart. If it was a bearish engulfing bar then you would place the entry below the low.

Stop Loss:

On the chart below you see a bearish engulfing bar, the stop loss would be placed right above the high. If the engulfing bar was bullish the stop loss would be placed right below the low.

Conclusion

The engulfing bar trade setup is a very reliable setup if you learn the basics of it and trade it properly. Make sure that you are practicing trading this setup on a demo account first to make sure that you know the ins and out of the setup. The more you trade it the more successful you will be. You will be able to tell the difference from a mediocre setup from a great one.
The engulfing bar is a great trade setup to add to your arsenal and for many traders all they need to be successful. So take the time and master this setup. If you do you will be very happy that you did.
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